How to be boring like me and buy three properties in seven years

We’ve all seen those stories online giving us “advice” about how to buy 100 properties in 50 days.

You know the ones? They’re the speculative diatribes that do more harm than good if you ask me because they trap the unwary into thinking that in the property game bigger is always better.

The thing is that’s not true at all.

Like so many things in life, quality usually exceeds quantity and this is especially the case in the realm of property investment.

Property investment, in fact, should be quite boring once you’ve developed the best strategy for you.

There shouldn’t be massive highs or mortifying lows because the properties that you’ve bought should be stable and they should be investment-grade.

What that means is that you may choose to invest in capital city markets, buying the best that you can, perhaps manufacturing some equity via simple renovations along the way, and then repeat the process with a few years in-between. Quite boring really, isn’t it?

History shows us that capital city markets generally outperform regional areas because most people want to live in in urban precincts and therefore there is continued strong demand for property, which pushes up prices.

City economies are also usually more robust than regional or rural locations, which are often dependent on a single industry that can wax and wane – look at the mining sector over recent years for example.

You see, the “get rich quick” mentality in any industry is a furphy. The key to wealth creation is actually the hands of time – ­and in property that is time in the market.

So, for Generation Y, a sound property investment strategy may be to purchase a property in one of Australia’s capital cities (after doing your due diligence of course – I would stay away from Perth and Darwin for the time being because their markets are in a downturn).

That property could be an established house or unit that’s in need of a makeover or it could be one that’s under market value for whatever reason. Either way, buying your first property sooner rather than later is the key to generating wealth over your lifetime.

After a year or two of owning that property and renting it out, you will have hopefully experienced some price growth or created some yourself through “sweat equity” or cosmetic renovation.

Let’s consider an example: Say you buy a $550,000 established unit in one of our capital cities (maybe in Melbourne) or a house (perhaps in Brisbane or Adelaide).

After three years, you may have achieved price growth in the vicinity of 18 per cent (so about six per cent per year, as an example) – even without creating equity yourself via a reno. So, that property may now be worth about $650,000, while your mortgage has remained the same.

What that means if that you now have about $100,000 to use as a deposit on another property. At the three-year mark, you get your investment property revalued and then set about investing in your second property.

Given the price growth over the three years, you may have to consider putting down a smaller deposit (possibly 15 per cent) to buy the best property you can. You will probably have to pay some Lenders Mortgage Insurance, but that could be a small price to pay to buy a better property with the money you have available at that point in time.

Again, perhaps you buy an $650,000 established house or unit in one of our major capital cities. In my opinion, you should always to buy as close to the CBD as possible (but generally not in the actual CBD).

This time, you rent that property out for four years, which means it may have increased by about 24 per cent (or six per cent annually), which will provide you with increased equity of $156,000. You could also undertake a simple cosmetic renovation that could bump that figure up by $20,000 to $30,000, which would give you more than $175,000 to use to invest in your third property in seven years.

As you can see, after seven years, you could be the owner of a multimillion-dollar portfolio of three quality capital city properties that will benefit from the magical powers of compounding over time.

As time goes on, of course, you will have access to more equity as the value of the properties continue to increase (taking into consideration that every market has peaks and troughs). But it’s important that you understand your financial goals to ensure that you know where you’re heading (such as how many properties are enough for you and your financial dreams?)

For many people, three or five quality investment properties is a great achievement (less than one per cent of Australians own more than five properties) and will significantly improve their financial futures.

Some people might want to own 50 properties in small regional locations, but for my money I’d take a handful of capital growth properties in our major cities any day. That’s why I followed this formula myself and bought three capital city properties in seven years.